CBI crystal ball predictably gloomy on UK economic outlook

The global nature of the down-turn and the negative impact of the credit crunch on firms’ access to capital and cash-flow, will deepen recession in the UK during the rest of 2009, according to the CBI Economic Forecast released today.

UK economic activity is expected to contract by 3.3% and unemployment reach 2.9 million by the end of the year.

And no respite is expected in the first half of 2010 according to the  group which represents over 200,000 British businesses.

It believes there will be six quarters of negative growth in the economy before fledgling recovery begins in 2010.

Nevertheless the first quarter of that year is expected to see unemployment breach the 3 million mark and growth remain elusive with a 0% increase in Gross Domestic Product (GDP).

The third quarter of 2009 also looks set to see inflation hit negative territory of -0.1% thanks to the rapid impact of the recession, falling fuel prices and the 2.5% VAT cut.

All this negative macro-economic data suggests businesses will scale back spending with a fall in investment predicted to be 9.2% in 2009 and 1.7% in 2010.

Nevertheless, Richard Lambert, CBI director general, while pessimistic about the outlook for the next 12 months, believes there is some hope:

During the second half of the year the impact of interest rate cuts, falling inflation, the relative weakness of Sterling, plus the fiscal boost, should start to have a stabilising effect.

Once again it seems the freeing up of credit will be at the heart of how well or otherwise British firms manage this recession.

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